hope to see from super committee

8/4/2019 Hope to See From Super Committee

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What We Hope to Seefrom the Super Committee


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C hairmenThe Honorable Bill FrenzelFormer Ranking Member, House Budget Commi ee

The Honorable Jim NussleFormer Director, O ce of Management and BudgetFormer Chairman, House Budget Commi ee

The Honorable Tim PennyFormer Member of Congress

The Honorable Charlie StenholmFormer Member of Congress

PresidentMaya MacGuineasPresident, Commi ee for a Responsible Federal Budget

d ireCtorsBarry AndersonFormer Acting Director, Congressional Budget O ce

The Honorable Roy AshFormer Director, O ce of Management and Budget

Erskine BowlesFormer Chief of Sta to the President of the United States

Former Co-Chair, National Commission on FiscalResponsibility and Reform

The Honorable Charles BowsherFormer Comptroller General of the United States

Steve CollPresident, New America Foundation

Dan CrippenFormer Director, Congressional Budget O ce

The Honorable Vic FazioFormer Member of Congress

The Honorable Willis GradisonFormer Ranking Member, House Budget Commi ee

The Honorable William H. Gray, IIIFormer Chairman, House Budget Commi ee

G. William HoaglandFormer Sta Director, Senate Budget Commi ee

Douglas Hol -EakinFormer Director, Congressional Budget O ce

The Honorable James JonesFormer Chairman, House Budget Commi ee

Lou KerrPresident and Chair, The Kerr Foundation, Inc.

The Honorable Jim KolbeFormer Member of Congress

The Honorable James McIntyre, Jr.Former Director, O ce of Management and Budget

The Honorable David MingeFormer Member of Congress

June ONeillFormer Director, Congressional Budget O ce

The Honorable Paul ONeillFormer Secretary of the U.S. Department of the Treasury

Marne Obernauer, Jr.Chairman, Beverage Distributors Company

Rudolph G. PennerFormer Director, Congressional Budget O ce

The Honorable Peter G. PetersonFounder and Chairman, Peter G. Peterson Foundation

Robert ReischauerFormer Director, Congressional Budget O ce

The Honorable Alice RivlinFormer Director, Congressional Budget O ceFormer Director, O ce of Management and Budget

The Honorable Charles RobbFormer Member of Congress

The Honorable Martin SaboFormer Chairman, House Budget Commi ee

The Honorable Alan K. SimpsonFormer Member of CongressFormer Co-Chair, National Commission on FiscalResponsibility and Reform

The Honorable John SpraFormer Chairman, House Budget Commi ee

C. Eugene SteuerleFellow and Richard B. Fisher Chair, The Urban Institute

The Honorable David StockmanFormer Director, O ce of Management and Budget

The Honorable John TannerFormer Member of Congress

The Honorable Laura D. TysonFormer Chairwoman, Council of Economic AdvisorsFormer Director, National Economic Council

The Honorable George VoinovichFormer Member of Congress

The Honorable Paul VolckerFormer Chairman, Federal Reserve System

Carol Cox WaitFormer President, Commi ee for a Responsible FederalBudget

The Honorable David M. WalkerFormer Comptroller General of the United States

The Honorable Joseph Wright, Jr.Former Director, O ce of Management and Budget

s enior a dvisorThe Honorable Robert StraussFormer Chairman, Democratic National Commi eeFormer U.S. Ambassador to the Soviet Union

a bout


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Tomorrow, the Joint Select Commi ee on De cit Reduction (Super Commi ee) will hold its rst meetingas part of a three-month e ort to identify $1.5 trillion in de cit reduction over the next decade. Shouldthe Super Commi ee fail to reach a majority agreement on a plan, or should that plan (or else a balanced budget amendment) not be passed by Congress, a $1.2 trillion across-the-board spending cut will go intoe ect.

Unfortunately, even if Congress succeeded in adopting a $1.5 trillion de cit reduction plan, it might not beenough to put the budget on a sustainable path. Thus, we urge the Super Commi ee to:

Go Big. From a realistic baseline in which current policies are extended, $1.5 trillion is not nearly enough tostabilize the debt. The Super Commi ee should look at all areas of the budget in order to identify savingsof two to three times as much, with a goal of stabilizing the debt as a share of the economy and then pu ingit on a downward path.

Go Long. Any serious scal plan must address the long-term drivers of our growing debt. The SuperCommi ee must enact serious reforms to Social Security, Medicare, Medicaid, and other federal healthspending.

Go Smart. Without economic growth, it will be di cult if not impossible to get our scal situation undercontrol. The Super Commi ee should pursue pro-growth tax reform which broadens the base and lowers

What We Hope to See fromthe Super Committee

Introduction


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The new Super Commi ee is charged to identify $1.5 trillion in de cit reduction, though $1.2 trillionwould be enough to avoid an automatic sequester. While this would represent signi cant savings,Commi ee members should be shooting to double or triple this target in order to put the debt on asustainable course.

Relative to CRFBs Realistic Baseline (see Box 1 for explanation), $1.5 trillion in savings would keepour debt on an upward path growing from 67 percent of GDP this year to over 75 percent by 2021. Bycomparison, the Fiscal Commission recommendations would bring the debt down to 65 percent by 2021;the Peterson-Pew Commission on Budget Reform has recommended reducing debt to 60 percent.

Indeed, relative to CRFBs Realistic Baseline, it would take $3 trillion in de cit reduction just to reduce thedebt to below 70 percent of GDP by 2021 and put it on a modestly downward path. Identifying an amountof de cit reduction signi cant enough to put the debt on a downward path will likely require looking atall areas of the budget, including the major entitlements, other mandatory programs, and the discretionary

budgets; it will also require looking at ways to generate additional revenues. The Appendix to this paperidenti es many policy changes where consensus may be possible.

Go Big

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FiG 1. d ebt Paths u nder v arious s Cenarios (P erCent oF GdP)

50%

55%

60%

65%

70%

75%

80%

85%


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Go Long

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The Budget Control Act that created the JointCommi ee on De cit Reduction (Super Commit-tee) called for the Congressional Budget O ce(CBO) to score its recommendations relative tocurrent law, but allows the Super Commi ee topresent alternative estimates. This means the Su-per Commi ee could choose an alternative base-

line, which can heavily in uence the total and/or relative amount of savings from any one plan.

Relative to current law, which assumes all the2001/2003/2010 tax cuts expire, the AMT is notpatched in the future, and policymakers stopenacting Doc Fixes, $1.5 trillion would be suf-cient to bring the debt down to 60 percent ofGDP.

In measuring the magnitude of the problem andwhether the Commi ee has solved it, however,assuming that these policies which have been ex-tended in the past all expire does not provide anaccurate picture of the future.

CRFBs Realistic Baseline assumes policymakers

continue these policies as they have in the past,and also assumes the wars in Iraq and Afghani-stan drawdown as expected. Compared to this baseline, $1.5 trillion would only result in debtlevels of 75 percent of GDP as opposed to 81 per-cent absent those changes. Under a similar base-line but one in which the upper-income tax cutswere allowed to expire as President Obama hascalled for $1.5 trillion would bring the debt to71 percent of GDP.

boX 1. W hat s in a b aseline ?

FiG 2. d ebt h eld by the PubliC in 2021 u nder v arious s Cenarios (P erCent oF GdP)

Super CommitteeSavings

Current LawBaseline

CRFB RealisticBaseline AssumingUpper-Income Tax

Cuts Expire

CRFB RealisticBaseline (All TaxCuts Continued)

No Savings 66% 78% 81%

$1.5 trillion 60% 71% 75%

$3.0 trillion 53% 65% 69%

$4.5 trillion 47% 59% 63%

Note: Current policy baseline assumes all 2001/2003/2010 income and estate tax cuts are extended, AMT patches and yearly

doc xes continue, and wars are drawn down.


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Base on our projections, federal health and retirement spending is slated to grow substantially from below10 percent of GDP today to 12 percent by 2021, 15 percent by 2035, and 17 percent by 2050. This is due bothto population aging (largely because of the retirement of the baby boom population) and to rapid healthcare cost growth.

To reassure markets and put our budget on a sustainable path over the long-term, the Super Commi eemust therefore address the growth of the nations largest entitlement programs, and give priority to thosereforms with the potential to slow long-term growth paths (even if they do not have signi cant scoreablesavings this decade). Reforms to Social Security, Medicare, and Medicaid are central to improving the long-term imbalances.

For Social Security, xes are well known and developed and there is no legitimate excuse for continuingto defer action. As the programs own Trustees continue to warn, Social Security is on the path towardinsolvency, with cash de cits growing from 0.3 percent of GDP today to 1.4 percent of GDP by 2035. By2036, according to the latest estimates, the Social Security trust funds will be empty and all bene ciaries will be hit with a 23 percent bene t cut. This can be easily avoided by enacting gradual changes today whichphase-in over the coming decades.

Health care spending is more complex, but as the single largest cause of our long-term de cits, it cannot beignored.

The Super Commi ee should start by reviewing those proposals which we already know would help tocontrol costs including changing cost sharing rules, reducing provider payments, increasing premiums,adjusting the Medicare eligibility age, reforming Medicaid rules, enacting malpractice reform, and

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FiG 3. s PendinG by C ateGory (P erCent oF GdP)

15%

20%

25%

30%

35%

40%

45%

50%Actual Projected

Net Interest

Health Care

Revenues


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expanding payment reforms under the health reform law, to name a few. The Super Commi ee must alsoseriously consider long-term structural reforms such as moving to a premium support system for Medicare,pu ing federal health spending on a budget, and/or reforming and strengthening the Independent PaymentAdvisory Board (IPAB) to be er control costs.

The Appendix describes the overlap in recommendations made across multiple de cit reduction plans thatcould guide the Super Commi ees decisions in these areas.

To be successful, a debt reduction plan should not simply pursue savings without consideration of theeconomic e ects. Instead, it should make smart and sensible reforms to the budget and tax code with aneye on enhancing (or at least not impeding) economic growth.

While we will not be able to grow our way out of this problem, higher growth will make the di cult task ofxing the budget much more manageable. According to CBO, growing just 0.1 percent faster than projected

each year would generate more than $300 billion in de cit reduction over a decade.

Over the medium and long-run, de cit reduction itself would be pro-growth by increasing the nationsinvestment capacity; but the composition of the de cit reduction policies will also be critically important.

Super Commi ee members should therefore recommend reducing lower-priority spending in orderto create the scal space to maintain or even increase high-priority and pro-growth spending. Over themedium- to long-term, this means moving from a consumption-based budget to one which focuses more

on investment.On the revenue side, the key will be pro-growth tax reform. Fundamental reform, which broadens the base by reducing deductions, credits, exemptions, and other tax expenditures; simpli es the code; and lowersindividual and corporate tax rates, has the potential to substantially improve economic growth while alsogenerating additional revenue for de cit reduction. The Joint Commi ee on Taxation has estimated thatincome tax reform that wipes out most tax expenditures in order to lower marginal rates, could increasethe size of the economy by 1.2 to 1.9 percent of GDP over the medium-term, and more over the long-term. 2

With a meaningful and credible scal plan, de cit reduction can be phased in gradually to give the economytime to recover. Even the announcement of such a plan can have positive e ects on business and consumercon dence, particular if the plan is su ciently large to create certainty over the nations long-term outlook.

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Stay Honest

Go Smart


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already-planned troop withdrawals in Iraq and Afghanistan. 3

To be credible, the Super Commi ee must not in ate their savings or paint an overly optimistic pictureof the resulting scal path. In fact, rather than focusing on the amount of de cit reduction, the SuperCommi ee should put forth recommendations su cient to put the debt on a stable then declining pathunder a reasonable set of assumptions. All assumptions in the baseline should be ones policymakers planto stick to (so for instance, assuming the cuts in Medicare spending from the Sustainable Growth Rate occurand increased revenues from the Alternative Minimum Tax a ecting millions more taxpayers should not be acceptable).

Commi ee members should also avoid other budget gimmicks, such as arbitrary and excessive back-loading of savings, timing gimmicks which push costs beyond the budget window, or unrealistic policychanges which future Congresses are likely to reverse.

Even once policies are adopted, more will be needed to make sure they are not undone. History shows thathaving agreed upon de cit reduction measures is no guarantee that they will come to fruition.

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If the Super Commi ee members judge their sav-ings against the current law baseline, which as-sumes that policies set to expire do expire (includ-ing the 2001/2003/2010 tax cuts and AMT patches),ideally they should explicitly address expiringprovisions. There are a number of ways lawmak-ers could responsibly address expiring provisions:

Make speci c policy recommendationsthat supersede expiring provisions, such asfundamental tax reform or Medicare paymentformula reforms;

Make speci c policy recommendationsabout which policies to extend in the contextof a sustainable debt path;

Or, create a clear process for dealing withexpiring provisions in the near future, withenforceable limits on the costs of extendingthose or alternative policies.

If the Super Commi ee does not addressexpiring provisions under current law in one

of the above manners, the Commi ee memberswill inherently be implying that current policieswill stay in place. Any projections of the SuperCommi ees recommendations would thenhave to be compared to realistic assumptionsabout likely extensions to policies in placetoday.

boX 2. b aselines and C urrent PoliCy e Xtensions

Make It Stick


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the Peterson-Pew Commission on Budget Reform recommended one approach in that lawmakers shouldreinforce their agreement by enacting budget rules and procedures to keep the debt on a stable or decliningpath. 4 Such a process would work both by helping to monitor and facilitate progress on achieving necessarysavings, and by pu ing triggers in place to keep the debt on track if policymakers fail to do so.

Other approaches also exist to institute e ective budget enforcement and outcomes. Lawmakers couldchoose to rely on annual savings relative to a particular baseline, aggregate spending targets (as somelawmakers have already proposed), revenue or de cit levels, or other scal metrics.

There are many ways to help make debt reduction policies stick, but stronger budget rules and oversight

can never compensate for the political will that is needed to enact and adhere to savings in the rst place.

* * *

The Super Commi ee is on a very tight deadline, but its success is imperative. All three major rating agencieshave suggested there could be consequences should the Commi ee deadlock and more importantly, theremay not be many opportunities like the current one to truly bring our debt under control. Right now, alleyes are on this issue, policymakers are invested in this process, and there is a unique fast-track process

in place. Waiting until next year will mean addressing the issue in the heat of a Presidential election, andwaiting beyond that could not only make things politically more di cult, but could also be too late toreassure markets. The types of structural changes needed to put the budget on a sustainable path just become more and more di cult, both economically and politically, the longer policymakers delay action.

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